TMI Blog1972 (10) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... urt : When, for the Wealth-tax Act, valuation of unquoted shares as on 31st March, 1967, has to be done in accordance with the Wealth-tax (Amendment) Rules, 1967, taking the last Published balance-sheet as on 31st December, 1966, as the basis, whether the Tribunal is right in placing the same value as on September 11, 1967, the date of the death of the deceased for the purpose of estate duty assessment resulting in non-consideration of other items not covered by the Wealth-tax Rules going into the determination of the value of shares for estate duty purposes ? " Learned counsel on both sides submitted that the question as framed is not satisfactory and that the same may be recast. As agreed to by the parties, we recast the question thus : "Whether there was material for the Appellate Tribunal to determine the value of the shares at Rs. 1,69,020 ? " One Mr. William Whitley died on September 11, 1967. At the time of his death he owned certain shares in Senapathy Whitley (Private) Ltd. The subscribed equity share capital of the said company was divided into 15,000 shares of Rs. 100 each, of which the deceased held 1,000 shares. The accounting year of the company ends on 31st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at December 31, 1967. After allowing 15% discount as provided under rule 1D, he valued the shares at Rs. 159.60 per share. As the said valuation approximated to the valuation adopted by the Assistant Controller and the difference being negligible, he confirmed the assessment made by the Assistant Controller. The Appellate Tribunal held that the break-up value of the shares could have been determined only on the basis of published information and information which the directors of the company would have given in answer to a reasonable question likely to be asked by any vendor-shareholder or intending purchaser and since the last published information in regard to the affairs of the company was as at December 31, 1966, the balance-sheet as at December 31, 1967, could not have been relied on for the purpose of arriving at the break-up value of the shares. The Tribunal accepting the valuation of the shares as determined for purposes of wealth-tax for the assessment year 1967-68, reduced the value of the shares to Rs. 1,69,020. The question at issue in this case is the proper value of the shares held by the deceased in Senapathy Whitley (Private) Ltd. for estate duty purposes. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under the Act, valuation ought to be made in accordance with recognised modes of valuation of shares since no rules have been made under the Act prescribing the manner in which the market value of unquoted equity shares may be determined. Sri Sarangan for the accountable person submitted that the finding of the Appellate Tribunal is essentially one of fact, that the Tribunal has adopted one of the recognised methods of valuation, viz., the break-up method of valuation, which is also the method adopted by the Appellate Controller, that the Appellate Controller also did not take into account the value of goodwill of the company and, therefore, it cannot be contended that there was no material for the Tribunal to value the shares at Rs. 1,69,020. Valuation of stocks and shares quoted on the stock exchange presents little difficulty ; but valuation of unquoted shares has always presented considerable difficulty. In Salvesen's Trustees v. Inland Revenue Commissioners, a leading case on the subject, Lord Fleming pointed out the difficulty of estimating the value of shares in a company whose shares could not be bought and sold in the open market and with regard to which there had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be introduced by the enactment of the Act which was brought into force on 15th October, 1953. No rules were made under the Act prescribing the manner in which the value of unquoted shares may be determined for purposes of estate duty. In the absense of such rules, the market value has to be determined in accordance with recognised methods of valuation. On 1st April, 1957, the Wealth-tax Act, 1957, came into force. The problem of valuation of unquoted shares arose under the said Act also. In exercise of the powers conferred by section 13 of the Wealth-tax Act, the Central Board of Direct Taxes issued Circular No. 3 WT. of 1957 dated September 28, 1957, containing instructions regarding valuation of unquoted shares. The method of valuation directed thereunder was the "break-up value ". The said circular was replaced by rule 1D inserted in the Wealth-tax Rules, 1957, by the Wealth-tax (Amendment) Rules 1967, issued on 6th October, 1967. Rule 1D reads thus : "1D. Market value of unquoted equity shares of companies, other than investment companies and managing agency companies.-The market value of an unquoted equity share of any company, other than an investment company or a ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulative preference shares." The Rules have been made in exercise of the powers conferred by section 46(2)(a) of the Wealth-tax Act, 1957, which empowers the Board to provide for the manner in which the market value of any asset may be determined. The Rules have been laid before each House of Parliament. Under its rule-making power, the Board cannot provide for any arbitrary manner of valuation of any asset. The method of valuation which may be prescribed shall be one of the recognised methods of valuation of assets. " Break-up value " method being one of the recognised methods of valuation, the Board has prescribed that method for the purposes of unquoted shares under the Wealth-tax Act. Although the practice prevailing in the United Kingdom, the United States of America, etc., requires the goodwill value of a company to be included for arriving at the net value of its assets, so far as India is concerned, the law as provided in rule 1D is that the " break-up value " method does not require the goodwill value of a company to be included. We agree with the learned counsel for the revenue that rule 1D does not govern the manner of valuation of shares for the purposes of estate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shares. The Assistant Controller made an addition of Rs. 10 a share on account of the expected dividend for the year 1967. No such addition was made by the Appellate Controller or the Tribunal. The department does not appear to have urged before the Tribunal that any such addition will have to be made. That apart, in our opinion, it is not open to the department to contend that an addition will have to be made on account of expected dividend for the year 1967. It is not clear from the order of the Assistant Controller, whether it is the dividend payable in 1967 for the year ended December 31, 1966, or the dividend payable in 1968 for the year ended December 31, 1967. It will be noticed that under Explanation II(ii)(b) of rule 1D of the Wealth-tax Rules, the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the " valuation date " at a general body meeting of the company shall not be treated as liabilities. It was not shown before us that the net value of the assets of the company valued at Rs. 26,82,792 does not include the amount set apart for payment of dividends on the shares. If the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X
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